Question

Industrial organization model vs resource-based model

Answer 1

rIndustrial organizational (I/O) views develop a competitive advantage through marketplace analysis and internal organizational adaptation. I/O models are continually changing their internal constructs to compete with a changing external market. Resource-based views are less changeable, as they focus on building a unique and profitable enterprise from the inside out. By comparison, I/O organizations are built from the outside in. I/O models compete by responding while RBV models compete by managing internal resources.

2. What is the focus of each view?

The I/O model focuses on environmental analysis through opportunities and threats. For example, an I/O model might assess a new strategy in terms of the opportunity for profit and the threat of loss it presents.

The RBV focuses on organizing a company according to its strengths and weaknesses. This model takes a thorough account of all resources the company currently possesses, making it highly internal in focus.

3. What are their determinants of profitability?

The I/O model provides above-average returns with a determinant of probability that focuses on the company's external environment. Internal skills are then developed to meet the demands of the external environment. Success in this last step is the primary determinant of profitability in an I/O model.

The primary determinant of profitability for a resource-based model is the number of quality resources the firm possesses. If the firm or company's strengths outweigh its weaknesses, it will be profitable. If the weaknesses outweigh or outnumber the company's strengths, the company will not be profitable. The uniqueness of the company's resources is also a strong determinant of its competitiveness in any given market.